BIMCO’s Chief Shipping Analyst, Niels Rasmussen, gives his insight into the market in September 2022, highlighting that the container market remains very strong despite small setbacks to rates, prices, and volumes. However, headwinds in the global economy, with very high inflation, increasing interest rates, and lower growth can still be felt.
The Shanghai Containerized Freight Index (SCFI), which represents spot rates for containers loading in Shanghai, enjoyed a period of almost uninterrupted growth between late May 2020 and mid-January 2022. At the end of the run, the index had increased by 491%. It has since dropped by 50% but remains at what would have been unprecedented levels prior to COVID 19.
The China Containerized Freight Index (CCFI), which reflects the average rates of all containers loaded in China, increased by 326% during the same period and equally remains at unprecedented levels despite recording a subsequent 19% loss. While container rates have disappointed in 2022, they certainly are not disappointing.
Highlights
- The Shanghai and China Containerized Freight Indices (SCFI and CCFI) have fallen by 50% and 19% respectively since the beginning of the year but remain significantly above 2019 levels due to the significant increases recorded between mid-2020 and early 2022.
- Time charter rates and second-hand prices have also reduced but remain high; five-year-old ships are on average 34.7% more expensive than newbuildings.
- The IMF has lowered its global economic growth forecast to 3.2% for 2022 and 2.9% for 2023, and highlights that the risk of a global recession has increased.
- We forecast that head-haul and regional volumes will fall by 1-2% in 2022 and grow by 3-4% in 2023 but many risks exist.
- The fleet is expected to grow by 2.9% in 2022 and by 8.0% in 2023.
- Vessel demand is expected to increase by 10% due to EEXI and lower sailing speeds, while we believe that 7-8% of the fleet will be released from congestion by spring 2023 at the latest.
- Overall, the fleet supply/demand balance will worsen and lead to lower time charter rates and second-hand prices. We equally expect further reductions in freight rates, but they will remain significantly higher than in 2019.
Container volumes in head-haul and regional trades during the first half of 2022 fell by 0.2% y/y but remained 8.0% ahead of the pre-COVID volumes recorded in 2019. This slight drop in volumes compared to 2021 cannot explain the large-scale corrections seen. We must instead turn to the supply side for an explanation. On one hand, the fleet has continued to grow, while on the other hand, congestion has played less of a role so far in 2022, though it remains an issue, and capacity supply has increased while demand has slowed slightly.
Time charter rates and prices for second-hand ships have followed the same trend as the SCFI and CCFI. Average time charter rates for a 6-12 month period have fallen by 6.0% since peaking in early April. Prices for five-year-old ships have on average reduced by 5.3% since April, but on average remain 34.7% more expensive than newbuildings. This indicates that there is still a willingness in the market to pay a significant premium to secure ships now, though it must be said that sales and purchase activity have fallen.
